Fewest Protected Trust Deeds Since 2001

22nd April 2015

The number of protected trust deeds registered in Scotland has fallen to the lowest levels witnessed since 2001. Only 834 Scottish trust deeds were registered in the final quarter of the Accountant in Bankruptcy’s financial year (2014/2015) according to official statistics that it has released today.

During the AIB’s financial year (April 2014 to March 2015) a total of just 4,439 protected trust deeds were registered. This compares to 6,681 in 2013/2014, 8,177 in 2012/2013, and 9,194 in 2011/2012.

While trust deeds are running at their lowest levels for fourteen years, the number of bankruptcies has also fallen significantly. They’re now running at their lowest levels for seven years. This decline exists despite a minor surge of applications in the final quarter, driven by people keen to avoid the need for an extra year’s contributions under the new bankruptcy regime (beginning April 2015).

There were a total of 6,722 bankruptcies in the 2014/2015 statistical year. This compares to 7,112 in 2013/2014, 8,838 in 2012/2013, and 11,056 in 2011/2012.

Overall figures for personal insolvency (bankruptcies plus protected trust deeds) are running at their lowest overall level for ten years.

It is clear that the use of Scottish trust deeds has declined proportionately much more significantly than is the case for bankruptcy. The primary cause for this is (in our view) the changes made to the term of a trust deed from the end of November 2013.

Since November 2013 an individual entering a trust deed faced a minimum repayment term of four years. The comparable term for repayments in bankruptcy has been three years. This has created a significant incentive for people to select bankruptcy (sequestration) rather than a trust deed.

Now, from April 2015 onwards, the minimum term of repayments in bankruptcy (applicable only to those deemed able to make them) will also be four years. The reduced term incentive to choose bankruptcy rather than trust deeds has been eliminated.

We may therefore expect to see the balance of choice between protected trust deeds and bankruptcy swing back somewhat in the 2015/2016 year (which is now underway). Any such correction in this balance will, however, likely take place within the wider context of overall personal insolvency numbers that have contracted significantly.

The debt arrangement scheme (DAS) is also being utilised less. The overall usage of this unique debt management solution fell by just over 9% compared to last year. More strikingly, the numbers plummeted in the final quarter of the year to just 633 debt payment plans being approved under the debt arrangement scheme.

DAS completions remain modest. Out of approximately 15,000 current cases, 892 were completed during the year (around 6% of the total). This low figure isn’t unexpected given that the scheme has grown in popularity in recent years. Many plans quite naturally have some time left to run before completion.

DAS revocations (failures) totalled 1825 for the year, or around 12% of the total number of live cases. While this failure percentage compares reasonably to that experienced by other types of debt solution, the extended average term of debt arrangement schemes suggests that a very high percentage of approved DAS cases will never actually reach completion.

Combining the reductions in trust deeds, sequestrations and DAS, it’s clear that individuals in Scotland are generally experiencing significantly diminished levels of debt distress. Much of the disastrous effect of carefree lending prior to the credit crunch has now worked through the system, better controls on dangerous high-cost short-term lending are in place, unemployment has fallen, and average wage increases are finally beginning to outstrip inflation.

However, reports are suggesting that households are once again beginning to increase their average overall levels of indebtedness. This may reflect a better economy and increased levels of household financial confidence, however it also creates an environment in which more people are exposed to debt difficulty if events were to take an unwelcome turn in the future.